Iran Conflict Sparks Global Food Price Concerns, Puts Developing Economies at Risk

• The ongoing conflict involving Iran is threatening a fresh surge in global food prices, especially in developing economies.
• Disruptions in fertiliser supply and rising energy costs are key drivers of this risk.
• Many developing countries were recovering from the pandemic and the Russia-Ukraine War, but the new crisis may reverse those gains.
• Households in vulnerable nations could face increased difficulty affording food and essentials.
• Food and fuel make up 30-50% of inflation baskets in emerging markets, compared to less than 25% in developed economies.
• This makes developing nations more exposed to global price shocks and volatility. The Strait of Hormuz, a key global trade route, is disrupted, affecting fertiliser shipments.
• Around 30% of globally traded fertilisers pass through this route.
• The conflict threatens 65-70% of global urea supplies, with prices already rising 30-40%
• Higher fertiliser prices could lead to reduced crop production and lower global food supply.
• This may impact staple crops, livestock feed, dairy, and meat production.
• Unlike oil, there are no large global reserves for fertilisers, increasing vulnerability.
• Countries like Somalia, Bangladesh, Kenya, and Pakistan are highly exposed due to reliance on imports.
• Some nations have already seen fertiliser costs rise sharply, worsening agricultural stress.
• Rising oil and gas prices (up over 50%) are increasing input and transportation costs across supply chains.Higher costs may lead to a second wave of inflation, first in energy, then in food prices.
• Nitrogen-intensive crops like wheat and corn are expected to be hit first.
• Past food price spikes have triggered social unrest in several countries. Governments may need to increase subsidies and policy interventions to maintain stability.
• Higher fuel prices could divert crops toward biofuel production instead of food supply.
• Economic slowdown in Gulf countries may reduce remittances to developing nations.
• This could further strain economies dependent on overseas income flows.
• Rising inflation risks are delaying interest rate cuts in emerging markets, impacting growth.
• Global institutions are considering support measures to manage fertiliser costs and food security.
• The longer the conflict continues, the higher the risk of a prolonged global food crisis.